The Notion of Business Strategy Notes

The Notion of Business Strategy Notes - The Notion of...

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The Notion of Business Strategy . . . or Some Notions Adam Brandenburger * Version 02/02/15 1 Introduction In these notes we consider three possible definitions of business strategy. None of these definitions is unarguable. Indeed, holding to a fixed definition of strategy would go against the kind of self- questioning that is often said to be part of the strategic mindset. 1 2 Strategy as Consistency This notion begins by picturing a business enterprise as a system of functions (manufacturing, marketing, finance, human resources, . . . ). The classic picture used is the so-called Strategy Wheel. 2 See Figure 1. Finance Products & Target Markets Marke4ng & Service Sales & Distribu4on Manufacturing Procurement Human Resources Informa4on Systems R&D The strategy Figure 1 * Stern School of Business, Polytechnic School of Engineering, Institute for the Interdisciplinary Study of Decision Making, Center for Data Science, New York University, New York, NY 10012, U.S.A., [email protected], adambrandenburger.com. Steve Gross and Jessy Hsieh provided important input into this note.
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Business strategy, under this view, recognizes the interdependencies among these functions, and that this means that if each function operates independently, there is no reason to believe that this will lead to the best possible performance of the enterprise as a whole. To see this point concretely, think about maximizing a function of several variables. Except in special cases, the overall (“global”) maximum of the function cannot be found by maximizing each variable separately. The definition of business strategy to which we are then led is that it is the activity of bringing about consistency among the various parts of an organization, so that the best overall performance is indeed obtained. 3 We are all familiar with classic examples of inconsistency, such as when sales is targeting one customer segment while R&D is working with another segment in mind. In sum, we can say that under this view, business strategy is literally the global rather than the local view of an organization. 3 Strategy as a Plan A different notion of business strategy comes from the field of game theory. The field began by studying games such as chess and poker, and the mathematics developed in this way has been
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